Clinton puts crosshairs on offshore tax deals

Hillary Clinton is putting a target on offshore tax deals as she seeks to defeat Bernie Sanders for the Democratic presidential nomination.

In speeches, debates and ads, the former secretary of State has pilloried the practice known as corporate inversions, arguing companies are exploiting a loophole.

{mosads}“I call it a perversion, but under the tax code it’s called an inversion. And we will make you pay for that with a new exit tax,” Clinton said Friday in Detroit.

Under an inversion deal, a U.S. company merges with a foreign company and moves its official headquarters overseas, lowering its tax burden.  

The deals have come under attack from Democrats and the Obama administration, which has pushed Congress to take action against “corporate deserters” they say are putting profits ahead of country.

Clinton has echoed that message as she battles Sanders for the support of liberal voters.

She has particularly criticized Wisconsin-based auto parts maker Johnson Controls, saying the company intends to “pretend to sell itself to a foreign company in Europe,” renouncing its U.S. citizenship after benefiting from the auto industry bailout.

The CEO of Johnson Controls said in the Detroit Free Press this week that the merger is not motivated by taxes and that the company did not receive auto bailout money.

Some strategists suggested that Clinton is hammering on inversions to rebut criticism from Sanders that she is too cozy with Wall Street.

“When Hillary talks about inversions, she’s trying to make a larger point, which is ‘I’m not in bed with corporate America like Bernie Sanders says I am,’ ” said Brad Bannon, a Democratic strategist who unaffiliated with the campaigns.

Craig Varoga, another Democratic strategist not working for either campaign, said Clinton is able to talk about inversions in a way that the Vermont senator can’t because of her international expertise. Her focus on the topic also “sets her up nicely” to criticize Republican presidential front-runner Donald Trump for hiring non-Americans to work at some of his U.S. properties, he added.

“I think this issue is perfect for her,” he said.

Targeting inversions fits into Clinton’s broader campaign message about companies not “paying their fair share” in taxes, said Harry Stein, director of fiscal policy for the Center for American Progress Action Fund.

“You’re hearing a concern that is broadly held by the American people,” Stein said. 

Sanders has been critical of inversions as well, though he has spent more of his time talking about Wall Street reform and criticizing trade deals. When Johnson Controls announced its plans to merge with Irish-based Tyco, he said in a statement that the deal “would be a disaster for American taxpayers.” 

Clinton and Sanders have put forward similar positions on inversions. Both candidates want to increase the percentage of shares of the merged company that the foreign company would have to contribute. They also take aim at “earnings stripping,” which is one of the major tax avoidance strategies used by inverted companies.

Sanders would make it harder for companies to invert than Clinton would because his proposal would require top management of the new company to be located in the foreign country. Inversions completed under that requirement would then be “more consequential,” because companies that decide to move their legal residence would also have to move at least some jobs out of the United States, said Eric Toder, co-director of the Urban-Brookings Tax Policy Center.

Additionally, Sanders wants to end the ability of U.S. companies to defer taxation on foreign earnings, which could motivate firms to invert, Toder added.

While Congress appears unlikely to act on inversions this year, the attention showered on the issue by both candidates could make the issue ripe for action if Democrats win the White House in November.

“Inversions is a very strong, populist issue,” said Toder. “If a company changes its residence, that gets people very upset.”

Republicans are less interested in action targeted narrowly at inversions, arguing the prevalence of the deals point to the need for an overhaul of the IRS code that brings America’s tax system in line with the rest of the world. Specifically, they say corporate tax rates should be lowered.

But Trump, a businessman turned presidential candidate, has called for lowering the corporate rate to 15 percent. Like Sanders, he would also end the ability of U.S. companies to defer taxation on foreign earnings.

During his Super Tuesday press conference, he complained about Pfizer’s intention to become an Irish company and about companies moving factories out of the United States.

“Now [companies are] leaving from places that they used to move to into other parts of the world. We can’t let that happen,” he said.

Trump has called for lowering the corporate rate to 15 percent. Like Sanders, he would also end the ability of U.S. companies to defer taxation on foreign earnings.